[Canada] Advice for understanding year-end wage subsidies

Year-end reporting - already complicated in an ordinary year  - has become “rocket surgery” in 2020, according to comprehensive advice on TWS & CEWS compliance in time for 2020 year-end published by Canadian Accountant.

This year Canada’s federal government introduced two different wage subsidies to support small businesses during the COVID-19 pandemic: the 10 per cent Temporary Wage Subsidy for Employers (TWS) and the Canada Emergency Wage Subsidy (CEWS). Both subsidies are considered income for the small businesses who took advantage of them and therefore each has specific reporting requirements. (Links via original reporting)

10 per cent Temporary Wage Subsidy (TWS)

The TWS is a three-month measure that was introduced in March 2020, to subsidise cash flow for business owners. The subsidy covers 10 per cent of the wages paid from March 18 to June 19 to a maximum of $1,375 per qualifying employee. Capping out at $25,000 for each eligible employer. TWS is now over but employers can retroactively claim it until the end of the year, as long as the earnings were within the three-month window. 

Canada Emergency Wage Subsidy (CEWS)

The CEWS is best thought of in two parts: CEWS 1.0 and CEWS 2.0. 

CEWS 1.0 can be claimed until the end of the year. The program spanned four pay periods, from March 15 to July 4, and provided a 75 per cent wage subsidy for eligible employers, capping out at $847 per week. CEWS 1.0 additionally included a 100 per cent government refund for employer-paid EI and CPP/QPP contributions for employees who were out of work as a result of the pandemic. 

to qualify, employers needed to experience a 15 per cent drop in revenue in March and a 30 per cent drop in the following months. However, to provide stability, employers qualifying for the first month automatically qualified for the second month, and so on. 

CEWS 2.0 - which has now been extended until June 2021 - allows eligible employers to qualify for an 85 per cent wage subsidy, capping out at $960 per week. 

The amount received depends on three factors: 

• The severity of revenue drop
• The claim period
• The average three-month revenue drop

In order to receive the full 85 per cent subsidy, employers must have seen a 70 per cent decline in revenue but - unlike with CEWS 1.0 - employers who did not see a 30 per cent revenue drop still qualify for a subsidy. 

Note: According to the Canada Payroll Association, COVID-19 has resulted in more than 250 federal and provincial changes. With things changing so fast Canadian Accountant advises that it is always best to directly check CRA’s communications. (Links via original reporting)

Year-End Reporting

In terms of what this all means for your clients’ reporting, the thing to remember is that TWS and CEWS should be viewed as income for employers and therefore it needs to be reported. This remains true even if your clients have yet to receive a subsidy that they’ve applied for - it still needs to be claimed within the period in which it falls. Subsidy amounts need to be reported as income in Line 101 of their GST and HST returns. 

For TWS, employers must submit the PD27 10 per cent Temporary Wage Subsidy Self-Identification Form for Employers by the end of February. For ease a fillable version can be found on the CRA website. The PD27 must be filed directly through the CRA. 

Besides the standard T4 information usually provided at year-end, the 2020 T4s will essentially be used as an audit tool by breaking down a segment of earnings into specific date ranges. Essentially allowing the CRA to validate the amounts received by  Canada Emergency Response Benefit (CERB) recipients. (Links via original reporting)

You must report the subsides with the four corresponding codes: 

• Code 57: Employment income - March 15 to May 9 - Periods 1 & 2
• Code 58: Employment income - May 10 to July 4 - Periods 3 & 4
• Code 59: Employment income - July 5 to August 29 - Periods 5 & 6
• Code 60: Employment income - August 30 to September 26 - Period 7

The advice concludes by pointing out that you must remember, when claiming the subsidies, it is based on wages earned. For reporting, however, it is based on wages paid.

Year-end reporting - already complicated in an ordinary year  - has become “rocket surgery” in 2020, according to comprehensive advice on TWS & CEWS compliance in time for 2020 year-end published by Canadian Accountant.

This year Canada’s federal government introduced two different wage subsidies to support small businesses during the COVID-19 pandemic: the 10 per cent Temporary Wage Subsidy for Employers (TWS) and the Canada Emergency Wage Subsidy (CEWS). Both subsidies are considered income for the small businesses who took advantage of them and therefore each has specific reporting requirements. (Links via original reporting)

10 per cent Temporary Wage Subsidy (TWS)

The TWS is a three-month measure that was introduced in March 2020, to subsidise cash flow for business owners. The subsidy covers 10 per cent of the wages paid from March 18 to June 19 to a maximum of $1,375 per qualifying employee. Capping out at $25,000 for each eligible employer. TWS is now over but employers can retroactively claim it until the end of the year, as long as the earnings were within the three-month window. 

Canada Emergency Wage Subsidy (CEWS)

The CEWS is best thought of in two parts: CEWS 1.0 and CEWS 2.0. 

CEWS 1.0 can be claimed until the end of the year. The program spanned four pay periods, from March 15 to July 4, and provided a 75 per cent wage subsidy for eligible employers, capping out at $847 per week. CEWS 1.0 additionally included a 100 per cent government refund for employer-paid EI and CPP/QPP contributions for employees who were out of work as a result of the pandemic. 

to qualify, employers needed to experience a 15 per cent drop in revenue in March and a 30 per cent drop in the following months. However, to provide stability, employers qualifying for the first month automatically qualified for the second month, and so on. 

CEWS 2.0 - which has now been extended until June 2021 - allows eligible employers to qualify for an 85 per cent wage subsidy, capping out at $960 per week. 

The amount received depends on three factors: 

• The severity of revenue drop
• The claim period
• The average three-month revenue drop

In order to receive the full 85 per cent subsidy, employers must have seen a 70 per cent decline in revenue but - unlike with CEWS 1.0 - employers who did not see a 30 per cent revenue drop still qualify for a subsidy. 

Note: According to the Canada Payroll Association, COVID-19 has resulted in more than 250 federal and provincial changes. With things changing so fast Canadian Accountant advises that it is always best to directly check CRA’s communications. (Links via original reporting)

Year-End Reporting

In terms of what this all means for your clients’ reporting, the thing to remember is that TWS and CEWS should be viewed as income for employers and therefore it needs to be reported. This remains true even if your clients have yet to receive a subsidy that they’ve applied for - it still needs to be claimed within the period in which it falls. Subsidy amounts need to be reported as income in Line 101 of their GST and HST returns. 

For TWS, employers must submit the PD27 10 per cent Temporary Wage Subsidy Self-Identification Form for Employers by the end of February. For ease a fillable version can be found on the CRA website. The PD27 must be filed directly through the CRA. 

Besides the standard T4 information usually provided at year-end, the 2020 T4s will essentially be used as an audit tool by breaking down a segment of earnings into specific date ranges. Essentially allowing the CRA to validate the amounts received by  Canada Emergency Response Benefit (CERB) recipients. (Links via original reporting)

You must report the subsides with the four corresponding codes: 

• Code 57: Employment income - March 15 to May 9 - Periods 1 & 2
• Code 58: Employment income - May 10 to July 4 - Periods 3 & 4
• Code 59: Employment income - July 5 to August 29 - Periods 5 & 6
• Code 60: Employment income - August 30 to September 26 - Period 7

The advice concludes by pointing out that you must remember, when claiming the subsidies, it is based on wages earned. For reporting, however, it is based on wages paid.